4 ms·

Am I correct if I say: the amount of money in circulation should match the amount of wealth produced by a given society, and therefore anything that doesn't fol

by mojuba 6y ago

Am I correct if I say: the amount of money in circulation should match the amount of wealth produced by a given society, and therefore anything that doesn't follow the same principle can't be called currency?

thatswrong0 6y ago
Then the US dollar isn't a currency either..?
- mojuba 6y ago
  I think it is a currency as long as there's single authority that regulates the amount of dollars in circulation.
  - thatswrong0 6y ago
    Maybe this is completely off base but my line of thinking was based around fractional reserve banking: let's say I have 10 dollars and I put them in the bank. Then let's say the bank lends out 9 out of 10 of the dollars to someone else for a mortgage. The net wealth is the same ($10), but there are now $19 in circulation.
    - mojuba 6y ago
      But that's just the bank lending your money on your behalf (though without you knowing or approving) - I don't see a problem with that.
sova 6y ago
Oh what a splendid question. Currency is simply the means of transfer for wealth but not all wealth needs to nor can be represented by currency. We sometimes talk about the value of clean water or clean air in dollars, but this is not something readily convertible. Likewise, the wealth we inherit via bodies (stomach, intestines, lungs) is not something sell-able or representable by currency [unless we're talking illicit organ sales, but then the benefactor is hardly the person who started with the wealth]. Currency must represent enough wealth to be able to flow (current -> currency) but it's more akin to red blood cells in a body of organs, it serves the organs via its transit. We call this "liquid" when we have wealth represented by cash. I believe the correct answer here is that currency is a (fixed) ratio of actual wealth being generated by a nation-state or planet and therefore the amount of hay grown, the amount of rice harvested, the amount of chips manufactured, the amount of creative output that is captured is measurable, and there is a fixed ratio of that amount that results in "currency." This might be easier to understand with a medieval analogy to a castle, we cannot sell our only castle, but we can use the agricultural surplus to trade. The castle might appear to have some sort of convertible wealth, but not all currency must represent that, because we are not frequently trading castles, but we are frequently trading currency for bread and for sustenance and commodity-goods. I think one would benefit from reading Foucault's "The Order of Things" which explains that trade can only happen when there is a surplus beyond what is locally necessary, and this surplus is what gives rise to currency.
- FabHK 6y ago
  It is a splendid question. A helpful concept might be "the velocity of money". The crucial insight is that all the money spent in an economy in one year can be expressed in two ways: Take the available quantity of money M, and assume that each dollar is used in to buy something V times per year. Then M x V is the total amount spent in a year. That must equal the gross national income, in nominal terms (ie in $ terms), namely P x Q (price level times quantity of goods produced). Thus: MV = PQ. (As a side note, I personally would definitely not look to Foucault for economic insight.)
  - sova 6y ago
    MV=PQ suggests that money-supply and price-level could increase in tandem, and V and Quantity-of-goods-produced could be unchanging. However, it seems that there is more subtlety to this equation, a threshold on how much Q can deviate before P must deviate. It's an interesting equation in that it seems to be the "homeostasis" for monetary supply, but the balancing act itself is quite unclear. Do you have any suggestions on where to learn more about how this equation self-rectifies? Also, if not Foucault, who would you recommend for "economic insight?" Foucault's chapters on "Exchange" in "The Order of Things" are quite insightful, and if you read them and have any particular criticisms or disagreements I would much enjoy reading them.
    - dragonwriter 6y ago
      > MV=PQ suggests that money-supply and price-level could increase in tandem, and V and Quantity-of-goods-produced could be unchanging. That’s mostly true, especially near full[0] employment. [0] not 100%, and how much less that is depends on other structural factors. If, say, uncontrolled social violence has people cowering in their homes instead of working the government printing money and offering to spend it on goods isn’t going to draw people out of their bunkers, its just going to drive up prices in the part of the monet economy still working.
- mojuba 6y ago
  > Currency is simply the means of transfer for wealth but not all wealth needs to nor can be represented by currency. My definition was very naive, I realize it now. So cryptocurrency can not call itself currency, correct? People can trade crypto and NFT all they want, or they can exchange crypto or NFT's for pizza or the other way around. However, calling it a currency and making it convertible to fiat money creates an illusion that crypto is another currency just a bit too volatile (and a lot of people believe that it will pass as cryptos will eventually stabilize, which is likely wrong). I think we should just stop calling it currency and thus put an end to a lot of confusion and unhealthy speculation.
Jeff_Brown 6y ago
> the amount of money in circulation should match the amount of wealth produced Economists tend to believe a little inflation is helpful[1], and to disagree on how much. If the money supply increased by exactly as much as total wealth (which is different than the total output in a given year), the average price level would be constant. Such a scenario has never lasted very long anywhere. (Inflation and deflation both happen, but precisely "zero flation" is extremely hard to achieve, even if you wanted it for some reason.) There's also a giant rabbit whole around how to define the average price level. It's an extremely hard problem -- what people produce, and what they need, varies from year to year, and durable goods depreciate by variable amounts, and much of our wealth is in intangible things like the recipes for vaccines with real but uncertain future payouts, and we can only hope to survey a subsample of the data. There's no obvious best approach. [1] https://www.irishtimes.com/business/economy/moderate-inflation-is-a-kind-of-economic-lubricant-1.1753291 https://www.irishtimes.com/business/economy/moderate-inflati...
- sova 6y ago
  I don't know if you are a Computing Scientist, but you might find this parallel interesting: "Markets are efficient if and only if P = NP" https://arxiv.org/abs/1002.2284 https://arxiv.org/abs/1002.2284

by mojuba 6y ago

thatswrong0 6y ago

Then the US dollar isn't a currency either..?

mojuba 6y ago
I think it is a currency as long as there's single authority that regulates the amount of dollars in circulation.
- thatswrong0 6y ago
  Maybe this is completely off base but my line of thinking was based around fractional reserve banking: let's say I have 10 dollars and I put them in the bank. Then let's say the bank lends out 9 out of 10 of the dollars to someone else for a mortgage. The net wealth is the same ($10), but there are now $19 in circulation.
  - mojuba 6y ago
    But that's just the bank lending your money on your behalf (though without you knowing or approving) - I don't see a problem with that.

sova 6y ago

Oh what a splendid question. Currency is simply the means of transfer for wealth but not all wealth needs to nor can be represented by currency. We sometimes talk about the value of clean water or clean air in dollars, but this is not something readily convertible. Likewise, the wealth we inherit via bodies (stomach, intestines, lungs) is not something sell-able or representable by currency [unless we're talking illicit organ sales, but then the benefactor is hardly the person who started with the wealth]. Currency must represent enough wealth to be able to flow (current -> currency) but it's more akin to red blood cells in a body of organs, it serves the organs via its transit. We call this "liquid" when we have wealth represented by cash. I believe the correct answer here is that currency is a (fixed) ratio of actual wealth being generated by a nation-state or planet and therefore the amount of hay grown, the amount of rice harvested, the amount of chips manufactured, the amount of creative output that is captured is measurable, and there is a fixed ratio of that amount that results in "currency." This might be easier to understand with a medieval analogy to a castle, we cannot sell our only castle, but we can use the agricultural surplus to trade. The castle might appear to have some sort of convertible wealth, but not all currency must represent that, because we are not frequently trading castles, but we are frequently trading currency for bread and for sustenance and commodity-goods. I think one would benefit from reading Foucault's "The Order of Things" which explains that trade can only happen when there is a surplus beyond what is locally necessary, and this surplus is what gives rise to currency.

FabHK 6y ago
It is a splendid question. A helpful concept might be "the velocity of money". The crucial insight is that all the money spent in an economy in one year can be expressed in two ways: Take the available quantity of money M, and assume that each dollar is used in to buy something V times per year. Then M x V is the total amount spent in a year. That must equal the gross national income, in nominal terms (ie in $ terms), namely P x Q (price level times quantity of goods produced). Thus: MV = PQ. (As a side note, I personally would definitely not look to Foucault for economic insight.)
- sova 6y ago
  MV=PQ suggests that money-supply and price-level could increase in tandem, and V and Quantity-of-goods-produced could be unchanging. However, it seems that there is more subtlety to this equation, a threshold on how much Q can deviate before P must deviate. It's an interesting equation in that it seems to be the "homeostasis" for monetary supply, but the balancing act itself is quite unclear. Do you have any suggestions on where to learn more about how this equation self-rectifies? Also, if not Foucault, who would you recommend for "economic insight?" Foucault's chapters on "Exchange" in "The Order of Things" are quite insightful, and if you read them and have any particular criticisms or disagreements I would much enjoy reading them.
  - dragonwriter 6y ago
    > MV=PQ suggests that money-supply and price-level could increase in tandem, and V and Quantity-of-goods-produced could be unchanging. That’s mostly true, especially near full[0] employment. [0] not 100%, and how much less that is depends on other structural factors. If, say, uncontrolled social violence has people cowering in their homes instead of working the government printing money and offering to spend it on goods isn’t going to draw people out of their bunkers, its just going to drive up prices in the part of the monet economy still working.
mojuba 6y ago
> Currency is simply the means of transfer for wealth but not all wealth needs to nor can be represented by currency. My definition was very naive, I realize it now. So cryptocurrency can not call itself currency, correct? People can trade crypto and NFT all they want, or they can exchange crypto or NFT's for pizza or the other way around. However, calling it a currency and making it convertible to fiat money creates an illusion that crypto is another currency just a bit too volatile (and a lot of people believe that it will pass as cryptos will eventually stabilize, which is likely wrong). I think we should just stop calling it currency and thus put an end to a lot of confusion and unhealthy speculation.

Jeff_Brown 6y ago

> the amount of money in circulation should match the amount of wealth produced Economists tend to believe a little inflation is helpful[1], and to disagree on how much. If the money supply increased by exactly as much as total wealth (which is different than the total output in a given year), the average price level would be constant. Such a scenario has never lasted very long anywhere. (Inflation and deflation both happen, but precisely "zero flation" is extremely hard to achieve, even if you wanted it for some reason.) There's also a giant rabbit whole around how to define the average price level. It's an extremely hard problem -- what people produce, and what they need, varies from year to year, and durable goods depreciate by variable amounts, and much of our wealth is in intangible things like the recipes for vaccines with real but uncertain future payouts, and we can only hope to survey a subsample of the data. There's no obvious best approach. [1] https://www.irishtimes.com/business/economy/moderate-inflation-is-a-kind-of-economic-lubricant-1.1753291 https://www.irishtimes.com/business/economy/moderate-inflati...

sova 6y ago
I don't know if you are a Computing Scientist, but you might find this parallel interesting: "Markets are efficient if and only if P = NP" https://arxiv.org/abs/1002.2284 https://arxiv.org/abs/1002.2284